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Effective Stewardship of
Affordable Homes

 Julie Brunner, OPAL CLT & National CLT Network
 Crystal Fisher, Community Home Trust
Building Reserves Overview
 Why reserves?
 Considerations in designing reserves
 Options for building reserves
 Reserves at work - Community Home Trust
Why Reserves?
 Long-term viability of homes
 Funder obligations – 99 year commitment
 Quality/durability of housing stock
 Health/safety issues in housing stock?
 Resale formulas limit buyer/seller investments
Considerations - Resales
  Does the formula address needed repairs?
  Is there a capital improvements component?
    Does it work?
    Is it designed for capital systems?
    Is it appraisal based?
Considerations - Resales
 How conservative is the resale formula?
 How affordable are the homes @ resale?
   % AMI served at time of initial sale
   % AMI served at resale
Considerations - Resales
RESALE PROCESS – Seller accountability
  What are the seller’s obligations?
    What is in place to enforce?
    Ground lease/covenant?
    Purchase/sale agreement?
    Other documents?
Considerations - Resales
RESALE PROCESS – Seller accountability
  What is the inspection process?
  Can the buyer/seller negotiate?
  Can the buyer get a lower price in lieu of repairs?
Considerations – Housing Stock
 What is the condition of the housing stock?
   New construction?
   Scattered site acquisition?
   Existing subdivisions/condos?
Considerations – Housing Stock
 Are there HOA or COA fees?
  What do they cover?
  Who controls them?
  Are they adequately funded?
Considerations - Administration

 Are there existing programs available?
   Revolving loan funds?
   Emergency repair programs?
Options – Purpose of Fund
 Emergency fund for program use?
 Emergency loan fund for homeowners?
 Reserve fund for planned replacements?
   Controlled/directed by homeowner?
   Controlled/directed by program staff?
Options – What Components?
Emergency fund – program use only
 Less defined uses
 At the discretion of program staff
 As needed at resale
Emergency loan – homeowner use
 General list of types of uses
 Defined list of terms/repayment options
Options – What Components?
 Planned Reserves – program controlled
   Targeted uses
   Program or price covers shortfalls
 Planned Reserves – homeowner controlled
   Clearly defined uses
   Limited list for ease of administration
   Homeowner covers shortfalls
       Options – Homeowner Reserves

Pros                                             Cons

Homeowners remain responsible                    Funds may be insufficient

Schedule replacements = cost savings             Unrealistic expectations = conflict

No request for assistance necessary              Bookkeeping

Fairness – all owners who “consumed a building   Homeowner may not track timing of needed
component contribute to its replacement          repairs
    Options – Emergency Loan Fund

Pros                                    Cons

Pooled funds = less $ needed overall    Homeowners must ask for “assistance”

More like conventional homeownership    Sense that program is offering money (rather
(you’re on your own)                    than the homeowners themselves)
Fewer users = less administration       Higher risk of more deferred repairs –
                                        fewer homeowners have access to the
Fewer users = more flexibility in use   More bookkeeping – tracking loan payments
    Options – Program Fund

Pros                                          Cons

Pooled funds = less $ needed overall          Least homeowner accountability

Easiest to administer – primarily used at     Least homeowner support
resale with little/no homeowner interaction
Most like conventional homeownership (you’re Highest risk of more deferred repairs –
REALLY on your own!)                         Homeowners don’t have access
Most flexible - fewer users and no            Potentially more costly – deferred repairs
homeowner involvement
Options – How to pay for it?

 Monthly fee
 Resale fee
 Fund at construction/acquisition
Options – How to pay for it?
 Considerations for each
   Is there already a monthly fee?
   What are the competing uses of the monthly fee?
   How does it impact affordability?
    Options – Monthly Fee

Pros                                         Cons

Steady stream of funding over time           Bookkeeping

Spreads responsibility over all homeowners   Monthly fee can appear high

Different properties may be assessed         Emotional attachment/expectations that may
different amounts                            not be met
Don’t have to wait until resales to fund     Less flexible from the perspective of program
Higher monthly cost =                        Increases subsidy needed up front since
true cost of homeownership                   buyers borrowing power is reduced.
    Options – Resale Fee (buyer)

Pros                                       Cons

Fee is hidden – built into price           Can be confusing – seller and buyer have
                                           different prices
Less direct connection between buyer and   Collection of fund is cut if it compromises
fund may mean more flexibility             affordability at resale
                                           Generally not available until resale

                                           If funded in initial budget, easy target for
                                           Many groups rely on this fee for
                                           administration and reserves end up unfunded
    Options – Resale Fee (Seller)

Pros                                   Cons

Fund may be more flexible              Seller’s equity is already limited
(no tie between fund and user)
No impact on subsidy needed up front   Many groups rely on this fee for
                                       administration and reserves end up unfunded
                                       Not available until resale
Administration – Homebuyer Reserve

 Allowable repairs
 Insufficient funds
   Track by unit
   Track by building component
 Repair documentation
 Sweat equity
   Quality control
   Material choices
Reserve Funds – Case Study

Community Housing Trust
Orange County, North Carolina
Crystal Fisher

 Our mission
 To create permanently-affordable housing and
 preserve land for the benefit of our community
Community Home Trust—Background

 Private non-profit CLT
 Orange, County, NC
 Affluent area--low to moderate incomes remain flat
 2007 CHT created an asset management program
CHT Asset Management Program
 Balance the responsibilities of long-term asset
   Current homeowners
   Future homebuyers
 Homeowners pay a monthly fee
   Varies depending on projected costs of unit
   Available for major systems replacement.
CHT Asset Management Program
 Included in total monthly housing expenses
   Affordability & underwriting
   Monthly fee considered when determining subsidy
 Fees – allowable uses
   Major systems of the property
   Other repair or replacement that improve:
CHT Asset Management Process
 165 permanently affordable homes
   37 detached houses
   86 townhomes
   42 condominiums.
 2010 = 196
 10 years = 66 resales
 Since 2007, used asset management funds 3X
Development of Program
 Clearly defined processes
   Support the goals of the program
   No way to prepare for all scenarios
 Maintain flexibility in the structure
   Enable CHT and homeowner to work together
   Best interest of the asset
 Clearly explain program to all buyers
   As early in their process as possible
   Reminders along the way
Implementation of Program
 Introduce the program/process during orientation
 Applicants sign a disclosure
   Acknowledges the rules of the program
   Uses of the program funds
 Property Manager oversees program
   Receipt/uses of funds
   Assisting homeowner in coordinating work
 Homeowners must use an approved vendor
The Good, The Bad and The Ugly
 Buyers can be resistant to the fee
   Remains with the property after they resell the home
 Only covers the major systems of the home
   Homeowners must understand their responsibilities
 Quarterly post-purchase maintenance classes
 Homes in trust prior to program
   At resale CHT assists seller in addressing repair needs
   Sometimes seed the fund for the next buyer

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